If you live in a high income tax state such as Oregon, California or New York, you’re probably not happy about the Tax Cuts and Jobs Act of 2017 capping your state and local income tax deductions at $10,000. Many people who were taking advantage of these deductions found their tax bill to be higher after the legislation passed. If nothing is tying you to where you currently live, such as a job or family, you may consider moving to a lower tax state.
Living in a place like Portland, Oregon where the metro area essentially extends into Washington, makes the option to move especially enticing because you may not have to uproot your life in a significant way. Or, you might choose to spend more than half the year in a state with both a warmer climate and lower taxes such as Nevada, Texas or Arizona.
When thinking about moving to another state for tax purposes, be sure to consider the potential benefits and drawbacks of each state’s capital gains and estate tax rates so you can truly compare your overall tax liability living in either state.
If you decide that a move is beneficial to your overall financial picture, be sure to check with your tax advisor for the state’s specific rules for proof of residence in the new state, which will be required in order to enjoy the tax benefits that come with the move. For example, some states require you to live there for 183 days each year in order to claim residency.
Whether you choose to move to the new state full‐time, or maintain homes in multiple locations, documentation is key. The tips below should help keep you up to date and ensure that you enjoy the tax benefits of your move.
- Find a home
This may sound obvious, but you will need to purchase or rent a home in the state where you plan to spend the majority of your time. A P.O. Box won’t work, as the address must be permanent and some states may also require you to fill out a “Declaration of Domicile” document.
- Update the IRS
As soon as possible, notify the IRS of your new address by submitting form 8822. This will also help to ensure that you receive your tax refunds or communication in a timely manner.
- Call USPS to change your address
Once you establish a permanent residency, you will want to go to USPS.com to forward your mail and begin receiving mail at your new address. This is an important step toward verifying your new residency.
- Get a new driver’s license
You’ll need to go to the DMV in the state where you intend to reside in order to obtain your new driver’s license and it’s also a good idea to register your vehicle in the same state.
- Ensure your spending patterns confirm residency
Once you move and establish residency, you want to make sure you’re showing signs of living there: initiate travel from your new home whenever possible; charge your living expenses, such as groceries and restaurants; if you’re moving to a warm climate, your air conditioning bill should suggest that someone is occupying the home. These simple items will help to verify your new residency status.
- Change your address with your employer
If you are employed and maintaining multiple homes, make sure your employment address reflects the state in which you claim residency. If your W‐2 lists another address, it will raise red flags for the IRS.
- Register to vote
You’ll want to register to vote in your new home state to make it clear that you consider it your primary residence. This is also an opportunity to understand the local political landscape.
- Join groups or clubs
Nothing says home quite like being involved in the community around you, so join a group or club. Your participation will confirm your commitment to your new jurisdiction.
Depending on where you live, your tax bill can have a significant impact on your wealth. If you have the flexibility and desire to consider a move, it’s worth researching your options. Be sure to research and follow the rules of the state as well as consult your financial planning, tax and legal professionals before making a final decision.